Health Care: 16% Of GDP?

Nowhere in the Constitution is health care mentioned as something the federal government has the power to oversee. Yet politicians in both political parties pay varying degrees of lip service to the notion that the U.S. health care system is broken and that the allegedly bright minds who populate Congress should manage its overhaul with an eye on cheaper care. A scarier thought would be hard to fathom.

At the same time, one argument made against reform--as though Congress' poor track record with other "reforms" isn't enough reason for lawmakers to leave it alone--is that with health care compromising 16% of gross domestic product, reform here could be particularly harmful to the broader economy. Allowing for the near certainty that any reform coming out of Washington would weaken the delivery of the health product, it should be noted that the "16% of GDP" canard is one of the weaker arguments for keeping the federal government at bay.

Indeed, regulations in the U.S. currently cost businesses $1.2 trillion per year, and with GDP in the $14 trillion range, it could be said that ridding the economy of growth-inhibiting regulations would cost us a substantial portion of GDP. In much the same way, lawyers and accountants surely make up a substantial percentage of our economy too, but as facilitators of economic growth, as opposed to producers, reform that reduces their role in the economy could hardly be seen as a bad thing.

While the life-saving innovations wrought by doctors and pharmaceutical companies can't be minimized given that humans themselves are economic capital, health care, far from an economic input, is for the most part pure consumption. Unless it saves our lives or heals what we've broken, most of what is described as health care doesn't make us more productive or valuable to our employers. Instead it is consumption and a transfer of wealth no different from buying a house or a movie ticket. It is because we're rich that we buy a lot of health care, much of it not of the life-saving variety.

For proof, one need only ask how many psychiatrists practice their trade in Pakistan or Bangladesh, or how many citizens of both countries avail themselves of the various anti-depressants marketed by pharmaceutical concerns, including Prozac, Zoloft and Paxil. Getting one's head shrunk is a non-essential luxury mostly found in rich countries (Argentina is an exception).

And while it's difficult to imagine a life without glasses, the growing consumption of LASIK surgery (this writer swears by it) is more of a vanity thing than economically essential. Notably, because LASIK procedures are purely elective since the consumer is also the payer, the prices of these procedures continue to drop.

As for plastic surgery, no doubt it can make us feel better for looking better, but it's hardly essential--much like a meal at a fancy restaurant or a trip to the south of France. In their excellent new book, How Capitalism Will Save Us, Forbes Chairman Steve Forbes and Elizabeth Ames note that demand for mostly elective plastic surgery has rocketed sixfold in the last 15 years.

And while some are of the view that a yearly visit to the doctor for a routine physical is essential, many of us do no such thing. This is particularly true among younger, frequently healthier people, who feel yearly visits (along with the insurance covering those visits) are excessive and a waste of money and time. Younger people are more likely to opt out of health insurance for this reason.

In short, much of what constitutes health care in a rich country like ours is nothing more than a reward for our productivity elsewhere. It's certainly true that we produce in order to consume, but since no entrepreneurs exist without capital, it could be argued that our obsession with cosmetic and mental wellness subtracts from the base of capital in economically harmful ways.

This isn't to say that the politicians seeking health care reform are right to pursue such a goal--far from it. But our consumption in this area is hardly the economic stimulant that reform's detractors would suggest. A great deal of health care is the reward for economic productivity, not the driver.

Assuming this is true, market-based reforms by which the government simply gets out of the way altogether would be an undeniable good because it might lead us to spend less on that which we don't always need.

Specifically, the federal government should stop protecting the pharmaceutical firms that sell their wares more cheaply in foreign markets, only to block the entrance of those drugs into the U.S. This isn't to suggest for one second that Big Pharma shouldn't achieve the highest profits possible on its innovations, but it is to say that Americans shouldn't be forced to subsidize the consumption of foreigners. Allowing drug re-importation would quickly force drugmakers to sell their products at market rates overseas, which would allow them

to charge us a non-subsidizing rate in the states. Re-importation would quickly become a non-issue if this "tariff" were removed.

Also, the tax-deductible nature of company health insurance is a subsidy like any other. The better solution would be to get rid of all health care tax subsidies so that companies have a greater incentive to offer their employees health savings accounts, as opposed to insurance that creates the illusion of "free" care. As individuals we're always most careful with our own money, and if our employers require us to pay out of pocket for routine, non-catastrophic care, we'll necessarily use the funds provided more wisely.

Back to GDP: Health care certainly constitutes 16% of our economy, but this is not a good thing. It's the result of unconstitutional government efforts to subsidize with transfer payments and tax breaks a lot of wasteful spending. In that sense, the only proper reform would involve the federal government exiting health care altogether so that spending on what is a good as opposed to a "right" is rationalized to our economic betterment.

John Tamny is editor of RealClearMarkets, a senior economist with H.C. Wainwright Economics and a senior economic advisor to Toreador Research and Trading. He writes a weekly column for Forbes.

I'm a speech and op-ed writer, Director of the Center for Economic Freedom at FreedomWorks, editor of RealClearMarkets, and a senior economic adviser to Toreador Research & Trading. My new book is The End of Work: Why Your Passion Can Become Your Job. Other books by me...